Notice 2013-60 - Clarification of the “begin construction” rule 

September 20:  The IRS today released an advance copy of Notice 2013-60, clarifying the begin construction rules for renewable energy projects provided in Notice 2013-29.

Background

A taxpayer is eligible to receive the renewable electricity production tax credit (PTC) under section 45, or the energy investment tax credit (ITC) under section 48 in lieu of the PTC, with respect to a facility if construction of such facility begins before January 1, 2014.


Notice 2013-29, issued in April 2015, provides two methods to determine when construction has begun on a facility.


  • A taxpayer may establish the beginning of construction by starting physical work of a significant nature.
  • Alternatively, a taxpayer may establish the beginning of construction by paying or incurring 5% of eligible depreciable costs (the “5% Safe Harbor”).

Read TaxNewsFlash-United States: Notice 2013-29 – Determining when “construction has
begun” for electricity production / energy investment tax credits

Notice 2013-60

Notice 2013-60 [PDF 21 KB] clarifies Notice 2013-29 on the following points:


  • Under the significant physical work rule, Notice 2013-29 states that taxpayers must start physical work prior to January 1, 2014, and thereafter maintain a continuous program of construction. Under the 5% Safe Harbor, Notice 2013-29 requires a taxpayer to pay or incur 5% of eligible costs prior to January 1, 2014, and thereafter engage in continuous efforts to advance to completion of the facility. Notice 2013-60 clarifies these requirements by providing that if a facility is placed in service before January 1, 2016, the continuous construction/continuous efforts tests will be deemed satisfied. If a facility is not placed in service before January 1, 2016, the continuous construction and continuous efforts tests must be satisfied pursuant to Notice 2013-29.
  • Notice 2013-29 provides that if a taxpayer enters into a binding written contract for a specific number of components to be produced for the taxpayer (a “master contract”), and then through a new binding written contract (a “project contract”) the taxpayer assigns its right to certain components to an affiliated special purpose entity that will own the facility for which such property will be used, work performed pursuant to the master contract may be used in determining when physical work begins with respect to the facility. Notice 2013-60 clarifies that the master contract rule also applies for purposes of the 5% Safe Harbor.
  • Finally, Notice 2013-29 did not address the transfer of a facility after construction has begun. Notice 2013-60 states that in the case of a facility, there is no restriction on transferability. If a qualified facility satisfies either the physical work test or the 5% Safe Harbor, a taxpayer that owns the facility when it is originally placed may claim the PTC or the ITC in lieu of the PTC, even if the taxpayer did own the facility at the time construction began.


For more information, contact a tax professional with KPMG’s Washington National Tax:


John Gimigliano

(202) 533-4022


Katherine Breaks

(202) 533-4578


Hannah Hawkins

(202) 533-4225




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